Retail sales slump 1.1% in March

Sales decline 1.2% in first quarter compared with fourth quarter

WASHINGTON (MarketWatch) - U.S. retail sales dropped a seasonally adjusted 1.1% in March, the Commerce Department reported Tuesday, after two months of gains had boosted hopes of a rebound in consumer spending.

Sales for January and February were revised higher in Tuesday's report by 0.5 percentage points, but the results were still much weaker than expected by economists, who thought sales would rise 0.2% in March.

"This looks like something of a reality check after a run of upside data surprises," wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics.

"This report is a reminder that the U.S. economy is not out of the woods, yet," wrote Harm Bandholz, an economist for UniCredit Markets.

With the recession entering its 16th month, consumers have been battered by staggering job destruction and the loss of trillions in wealth in their homes and investments.

Recently, however, some "green shoots" have appeared, in Federal Reserve Chairman Ben Bernanke's words, including increases in consumer spending in January and February. Bernanke repeated those comments in a speech Tuesday at Morehouse College in Atlanta, saying he had noticed tentative signs of a slowing in the pace of decline. See full story.

Against that background, retail sales in March were disappointing. Retail sales account for about half of consumer spending.

Sales fell in March for almost every type of store except the necessities of food and drugs. Sales of durable goods were particularly soft in March.

In the past year, sales are down 9.4%. The figures are not adjusted for price changes.

Retail sales in the first quarter were down 1.2% compared with the fourth quarter of last year, raising the possibility that real consumer spending may have fallen again in the first three months of 2009 after plunging at a 4% annual rate in the final six months of 2008.

Economist David Rosenberg of Bank of America's Merrill Lynch said he expected consumer spending to decline at a 3.7% annual pace in the April through June quarter.

The government's estimates for March could be understating the health of the retail sector, because this year's late Easter pushed some sales that would typically occur in March into April. In a separate report, chain stores' same-store sales rose 0.8% last week, according to the weekly index from the International Council of Shopping Centers.

The government attempts to adjust for the timing of the holiday, but such seasonal adjustments are never perfect. Economists suggest averaging March and April results to get a truer picture.

In a separate report, the Labor Department said producer prices fell 1.2% in March, much more than the 0.5% decline expected. Core prices - which exclude food and energy - were unchanged. Producer prices are down 3.5% in the past year, the largest decline in wholesale prices since 1950. See full story.

Details of retail

Sales of autos and auto parts fell 2.3% in March, a surprise in light of the 8% increase reported by the automakers. The government's retail sales figures exclude fleet sales, which likely boosted the companies' results.

Sales at gasoline stations fell 1.6% on a seasonally adjusted decline in prices. Gasoline prices typically rise more in March than they did this year.

Sales at the mall were weak. Sales at general merchandise stores fell 0.2%, including a 0.3% decline at department stores. Sales at clothing stores dropped 1.8%. Sales at stores catering to leisure-time activities, such as sports or reading, fell 0.9%.

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